The Online Library of Liberty

A project of Liberty Fund, Inc.

• Titles In the Liberty Fund Library of the Works of Ludwig Von Mises
• Acknowledgments
• Preface
• Introduction
• Monetary and Economic Policy Problems Before, During, and After the Great War
• Part 1: Austro-hungarian Monetary and Fiscal Policy Issues Before the First World War
• Chapter 1: The Political-economic Motives of the Austrian Currency Reform 1
• Chapter 2: The Problem of Legal Resumption of Specie Payments In Austria-hungary 1
• Chapter 3: The Foreign Exchange Policy of the Austro-hungarian Bank 1
• Chapter 4: On the Problem of Legal Resumption of Specie Payments In Austria-hungary
• Chapter 5: The Fourth Issuing Right of the Austro-hungarian Bank 1
• Chapter 6: Financial Reform In Austria 1
• Chapter 7: The General Rise In Prices In the Light of Economic Theory 1
• Chapter 8: On Rising Prices and Purchasing Power Policies 1
• Chapter 9: Disturbances In the Economic Life of the Austro-hungarian Monarchy During the Years 1912-1913 1
• Part 2: Economic Policy Issues In the Midst of the Great War
• Chapter 10: On the Goals of Trade Policy 1
• Chapter 11: Inflation 1
• Chapter 12: On Paying For the Costs of War and War Loans 1
• Chapter 13: Remarks Concerning the Problem of Emigration 1
• Part 3: Austrian Fiscal and Monetary Problems In the Postwar Period
• Chapter 14: Monetary Devaluation and the National Budget 1
• Chapter 15: For the Reintroduction of Normal Stock Market Practices In Foreign Exchange Dealings 1
• Chapter 16: On Carl Menger’s Eightieth Birthday 1
• Chapter 17: How Can Austria Be Saved?
• Chapter 18: The Claims of Note Holders Upon Liquidation of the Bank 1
• Chapter 19: The Austrian Currency Problem Thirty Years Ago and Today 1
• Chapter 20: The Restoration of Austria’s Economic Situation 1
• Chapter 21: The Austrian Problem 1
• Chapter 22: The Gold-exchange Standard 1
• Chapter 23: The Social Democratic Agrarian Program 1
• Chapter 24: America and the Reconstruction of the European Economy 1
• Chapter 25: The Currency and Finances of the Federal State of Austria 1
• Chapter 26: The Economic Crisis and Lessons For Banking Policy 1
• Part 4: Interventionism, Collectivism, and Their Ideological Roots
• Chapter 27: The Economic System of Interventionism 1
• Chapter 28: Economic Order and the Political System 1
• Chapter 29: Remarks Concerning the Ideological Roots of the Monetary Catastrophe of 1923 1
• Appendixes
• Appendix A: Maxims For the Discussion of Methodological Problems In the Social Sciences: Paper Delivered At the Private Seminar 1
• Appendix B: Short Curriculum Vitae of Mayer Rachmiel Mises of Lemberg 1

CHAPTER 16

On Carl Menger’s Eightieth Birthday1

Scientific development does not take place in a simultaneous and uninterrupted ascent; periods of great achievement are followed by periods of intellectual exhaustion; the masters are followed by the imitators, until men of genius again bring forth a new flowering. Around the middle of the nineteenth century economics had unquestionably reached a point of stagnation. The Classical system was felt to be unsatisfactory, but there was no way to go beyond it. In order to formulate the problems that needed to be solved there was a need for men who were not inferior to David Ricardo.2 Even John Stuart Mill, the most original of the economists of that time, was not the man for this task.3

The Frenchman Jules Dupuit4 and the Prussian assessor Hermann Gossen5 tried to follow the path that had to be traveled. Without being aware of these earlier writings (which had been forgotten), Carl Menger in Austria,6 Jevons in England,7 and Leon Walras in Switzerland8 each independently came forward around 1871. Their works show a remarkable agreement in all of the fundamentals.

Most exciting, however, is the grounding of the general theory of value on the basic idea of the subjective value of goods, as worked out by Menger. Menger’s slim volume Grundsätze der Volkswirtshaftslehre completely revolutionized economic science.9 Everything that has been achieved since then is built upon Menger’s works. In Austria, marginal utility theory found its most important representatives, besides Menger, in the contributions of Friedrich von Wieser10 and Eugen von Böhm-Bawerk (who departed from us at much too early an age).11 It is customary to unite these three under the designation “the Austrian School.” Under this name they gained a worldwide reputation. In Germany they were able to find some minimal recognition; their success was incomparably greater in England, Italy, the Netherlands, and the Scandinavian countries. Modern American economics is based on the works of the “Austrian School.”12

In 1883 Menger published his Untersuchungen über die Methode der Socialwissenschaften und der Politischen Oekonomie insbesondere.13 With this book, which was primarily intended as a critique of the relativism and historicism14 then reigning in Germany, he developed new approaches to the logic and epistemology of the social sciences. At first this, too, was little noticed; more than twenty years passed before its importance was fully recognized. Recent methodological works are definitely under the influence of this book.

Menger was not a prolific writer. In terms of quantity his publications take up only a little space. Moreover, he seldom took up his pen to contribute to the clarification of contemporary economic problems. Of the questions of the day, the currency problem attracted him most. His little treatise about the Austrian currency problem15 and his expositions at the Currency Inquiry of 1892 decisively influenced the reform of the Austrian monetary system. He also repeatedly dealt with the fundamental aspects of the theory of money, especially in his classic contribution to the Handwörterbuch der Staatswissenschaften.16

As already mentioned, Menger’s works were not appreciated for a long time; only later were they fully appreciated, as their reputation grew from year to year. Without exaggeration, it can be said today that the Austrian School of economics occupies a permanent place in the history of the social sciences. Carl Menger can look back on his life’s work with pride and satisfaction.17 May it yet be granted to him to bring to completion the great works with which he is still occupied.

[1. ][This article originally appeared in German in the Neues Wiener Tagblatt, no. 52 (February 22, 1920).—Ed.]

[2. ][David Ricardo (1772-1823) was one of the fountainheads of British Classical economics in the first half of the nineteenth century. His Principles of Political Economy and Taxation (1817) set the tone and direction for much of Classical economics for the next half century.—Ed.]

[3. ][John Stuart Mill (1806-73) was one of the leading members among the British Classical economists, with his most important work being Principles of Political Economy, with Applications to Social Philosophy (1848). In this work, Mill had argued that there was nothing further to develop in the essentials of the theory of value, based on the idea that some measure of the quantity of labor devoted to the production of goods determined relative prices in the market.—Ed.]

[4. ][Jules Dupuit (1804-66) first presented an exposition of the concept of diminishing marginal utility in an 1844 article on optimum pricing for a toll bridge. From a curve for the diminishing marginal utility for the consumption of a good, he derived the explanation for a downward-sloping demand curve.—Ed.]

[5. ][Hermann Heinrich Gossen (1810-58) developed a systematic theory of economic relationships based on the concept of marginal utility in his 1854 work The Law of Economic Relations, and the Rule of Human Action Derived Therefrom. The book was totally ignored following its publication until rediscovered by William Stanley Jevons in the 1870s after the publication of his own version of the marginalist concept. Gossen worked in the Prussian civil service but was constantly criticized by superiors for living a life of drinking, gambling, and “bad company.”—Ed.]

[6. ][Carl Menger (1840-1921) was the founder of the Austrian School of economics. In later life he said that he came to the theory of marginal utility (though in his own exposition in 1871 he explained the concept without giving it a name) while he was working for the Austrian Ministry of Prices, and concluded that the labor theory of value could not successfully explain the formation of prices on the market.—Ed.]

[7. ][William Stanley Jevons (1835-83) developed the theory of marginal utility in his 1871 volume The Theory of Political Economy, building on the utilitarian conception that human action is guided by the pursuit of “pleasure” and the avoidance of “pain.”—Ed.]

[8. ]See Chapter 5, “The Fourth Issuing Right of the Austro-Hungarian Bank,” footnote 8.

[9. ][Carl Menger, Principles of Economics (New York: New York University Press, [1871] 1981). The Principles was meant to be the first of four volumes on most of the basic themes in economic theory and policy. In the introduction to the German-language 1923 reprint of his father’s Principles, Karl Menger Jr. described the unpublished remaining three volumes thus: vol. 2: Interest, Wages, Rent, Income, Credit, and Paper Money; vol. 3: The Theory of Production and Commerce; the Technological Requirements for Production; the Economic Conditions for Production; Commerce: The Theory of the Techniques of Commerce, Speculation, Arbitrage; Retail Trade; and vol. 4: Critique of the Contemporary Economy and Proposals for Social Reform.—Ed.]

[10. ][Friedrich von Wieser (1851-1926) was one of the leading members of the Austrian School before and immediately after the First World War. His major contributions were to the theory of marginal utility, the concept of opportunity cost, and the theory of imputation, i.e., the determination of the value of the factors of production. His most widely read works on these themes were Natural Value (1889) and Social Economics (1914), the latter being the only systematic treatise on economic theory by a member of the Austrian School before the First World War.—Ed.]

[11. ][Eugen von Böhm-Bawerk (1851-1914) was one of the leading members of the Austrian School before the First World War. His major contributions were to the theory of capital and interest, as well as the general theory of value, price, and cost. He developed these themes in Capital and Interest: A History and Critique of Interest Theories (1884) and The Positive Theory of Capital (1889). He also applied his “Austrian” theory of value and interest to challenge Karl Marx’s labor theory of value and theory of exploitation in his famous 1896 monograph Karl Marx and the Close of His System. For a short appreciation of Böhm-Bawerk and his contributions to economics, see Ludwig von Mises, “Eugen von Böhm-Bawerk: In Memory of the Tenth Anniversary of His Death,” (1924) in Selected Writings of Ludwig von Mises, vol. 2 (Indianapolis: Liberty Fund, 2002), pp. 329-32.—Ed.]

[12. ][See Ludwig von Mises, “The Historical Setting of the Austrian School of Economics,” (1969) reprinted in Bettina Bien Greaves, ed., Austrian Economics: An Anthology (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1996), pp. 53-76.—Ed.]

[13. ][Carl Menger, Investigations into the Method of the Social Sciences with Special Reference to Economics (New York: New York University Press, [1883] 1985). This work ignited what became known as the Methodenstreit, or “struggle over methods,” between members of the Austrian School and the German Historical School. It was rudely reviewed by Gustav von Schmoller, one of the leading figures of the Historical School, to which Menger replied in a short book, Die Irrthümer des Historismus in der deutschenNationalökonomie [The Errors of the German Historical School] (1884), written in the form of sixteen letters to a friend. Menger scathingly criticized Schmoller’s antitheoretical approach to economic analysis, saying that it “consists of a primordial ooze of historico-statistical material.”—Ed.]

[14. ][Historicism was a German reaction to the Enlightenment after the French Revolution and the Napoleonic wars, which refused to wring general rules from reason and ridiculed the idea of universal theoretical systems. Historicists insisted on observing the “unique” in its endless historical variations, arguing that economic behavior and thus economic laws were completely dependent upon their particular historical, social, and institutional context. Rooted in Hegelian philosophy and the romantic nationalist critiques of abstract theory by Friedrich List and Adam Müller, historicism relied on empirical and inductive reasoning. It offered no principles to guide or restrain political action and was hostile to both the tradition of natural law and utilitarianism. The Younger Historical School under Gustav Schmoller claimed that economics was inherently a normative discipline and thus should be engaged in forging tools for use by policy makers and businessmen. At the end of the nineteenth century historicists, in the form of the German Historical School, had a virtual monopoly over German academia, with very few members of the Austrian School able to obtain academic positions at German universities.—Ed.]

[15. ][Carl Menger, Beiträge zur Wahrungsfrage [Contributions to the Currency Question], (1892) reprinted in The Collected Works of Carl Menger, vol. 4 (London: London School of Economics and Political Science, 1936).—Ed.]

[16. ][Carl Menger, “Money,” (1892) in Michael Latzer and Stefan W. Schmitz, eds., Carl Menger and the Evolution of Payments Systems: From Barter to Electronic Money (Northhampton, Mass.: Edward Elgar, 2002), pp. 25-107. See also Carl Menger, “On the Origin of Money,” (1892) reprinted in Richard M. Ebeling, ed., Austrian Economics: A Reader (Hillsdale, Mich.: Hillsdale College Press, 1991), pp. 483-504.—Ed.]

[17. ][See also F. A. Hayek, “Carl Menger (1840-1921),” in Peter G. Klein, ed., The Collected Works of F. A. Hayek, vol. 4, The Fortunes of Liberalism: Essays on Austrian Economics and the Ideal of Freedom (Chicago: University of Chicago Press, 1992), pp. 61-107.—Ed.]